Does parent's tax free lump sum count as household income for their child's student maintenance?

OldBeanz

You do not have to base the loan on last year's figure either. You can tell them the amount you believe you will earn in the present year and they will base the loan on that. At the end of the FY they will write to you and ask for the figures and adjust accordingly.

zagfles

OldBeanz wrote: »

You do not have to base the loan on last year's figure either. You can tell them the amount you believe you will earn in the present year and they will base the loan on that. At the end of the FY they will write to you and ask for the figures and adjust accordingly.

Only if household income has dropped by at least 15%

Straightbat

Can you guys help me on a similar question please?

For child tax credit applications, guidance and worksheets explicitly guide you towards deducting charitable donations from the assessed income. The student finance form however only refers to deductions of tax free "expenses" which you fill in in appropriate boxes. I messaged SFE and the reply seemed to confirm that the charitable donations should not be included, but they are so slow to reply I'm still waiting for clarification as to how this is shown on the form. I have asked if I should just deduct it from the income as you do with child tax credits and if not where it goes on the form.

I have also asked them whether you just deduct any interest within your tax free allowance (in my case of £1,000) before recording your savings income, as the form does not make this clear either.

zagfles

Straightbat wrote: »

Can you guys help me on a similar question please?

For child tax credit applications, guidance and worksheets explicitly guide you towards deducting charitable donations from the assessed income. The student finance form however only refers to deductions of tax free "expenses" which you fill in in appropriate boxes. I messaged SFE and the reply seemed to confirm that the charitable donations should not be included, but they are so slow to reply I'm still waiting for clarification as to how this is shown on the form. I have asked if I should just deduct it from the income as you do with child tax credits and if not where it goes on the form.

Don't think you can deduct gift aid contributions, I haven't anyway, couldn't find anywhere to record it. If you donate via payroll giving you'd probably get them deducted as it'd reduce your P60/taxable income.

I have also asked them whether you just deduct any interest within your tax free allowance (in my case of £1,000) before recording your savings income, as the form does not make this clear either.

No you have to declare all taxable interest, even if it falls within an allowance like the personal allowance, the savings allowance or the nil rate band for savings. It's whether is taxable that matters, not whether you paid tax on it.

In the same way, if your earnings are £10,000, you don't pay tax because it's within the personal allowance. but the earnings are taxable so you need to declare it.

You don't need to declare tax free interest eg from ISAs, premium bonds etc.

Straightbat

Thank you for your reply zagfles I am afraid I did not get a notification so did not see it sooner.

Messaging SFE via Facebook it seems you do not have to include charitable donations that are gift aided, but they are so slow to reply it is impossible to explore what they tell you further with follow-up questions. I agree there is nowhere on the form to record such donations and I'm waiting to hear from them whether I should just deduct them from my income before writing that down like you do with child tax credits, or whether I should even put them as a deductible expense, although charitable donations are not listed as an "expense" category in the guidance notes on the form.

Straightbat

There is so much ambiguity about the definition of "taxable income", which which you have touched on.

E.g. some income is part of a tax free ALLOWANCE (personal allowance, tax-free savings interest allowance) while other income, subject to how it is used, qualifies for tax RELIEF (pension contributions, charitable donations). But even the latter category is confusing, since you do actually pay tax on charitable donations which is then reclaimed by the charity (I'm not sure about payroll giving). And it is inconsistent that pension contributions are deducted from income for assessing student finance if charitable donations which are in the same category (relieved of tax) are not.

One could distinguish allowances from income which is relieved of tax by saying allowances ARE taxed but at 0%. But I'm sure when I was at school we were taught to work out the taxable income by deducting the allowances from gross income 🤔🤔🤔!

The guidance also says, "Gross UK interest (before tax has been deducted)
You must include interest you receive on bank, building society and other savings accounts unless
specifically non-taxable, for example, a non-taxable Individual Savings Account (ISA) etc.". In my view the first £1000 of my savings interest is "specifically non-taxable", although I'm not sure why they throw "specifically" in. But, it's non-taxable specifically to me, unless we are using the 0% rate allowance argument, which to me is just playing with words and not a substantive distinction.

zagfles

Straightbat wrote: »

Thank you for your reply zagfles I am afraid I did not get a notification so did not see it sooner.

Messaging SFE via Facebook it seems you do not have to include charitable donations that are gift aided

"you do not have to include" implies they're saying to ignore them, ie don't deduct them.

but they are so slow to reply it is impossible to explore what they tell you further with follow-up questions. I agree there is nowhere on the form to record such donations and I'm waiting to hear from them whether I should just deduct them from my income before writing that down like you do with child tax credits, or whether I should even put them as a deductible expense, although charitable donations are not listed as an "expense" category in the guidance notes on the form.

They're not an "expense". Re tax credits - the legislation specifically allows deductions of pension contributions and gift aid, that's why you can do it with tax credits. Not sure what the student loans legislation says.

zagfles

Straightbat wrote: »

There is so much ambiguity about the definition of "taxable income", which which you have touched on.

E.g. some income is part of a tax free ALLOWANCE (personal allowance, tax-free savings interest allowance) while other income, subject to how it is used, qualifies for tax RELIEF (pension contributions, charitable donations). But even the latter category is confusing, since you do actually pay tax on charitable donations which is then reclaimed by the charity (I'm not sure about payroll giving).

Yes. Gift Aid contributions do not lower your taxable income, nor do contributions to a private pension scheme. This is common myth. What they do is extend your basic rate band, giving you higher rate relief (if applicable), and they also lower your "adjusted net income" which is used for stuff like the child benefit tax and personal allowance withdrawal for high earners.

If you look at the definition of "adjusted net income", you'll see that it starts with taxable income then specifically deducts RAS pension conts and gift aid - a step that wouldn't be needed if they were already deducted from the definition of taxable income.

Salary sacrifice into a pension does reduce taxable income, as you exchange pay for a non-taxable benefit (extra pension). Also probably payroll giving as that is deducted before tax.

And it is inconsistent that pension contributions are deducted from income for assessing student finance if charitable donations which are in the same category (relieved of tax) are not.

There's loads of inconsistencies in assessment of income used for tax, tax credits and other stuff like student loans. For instance, with tax credits you have to declare strike pay (not taxable) and you can deduct taxable stuff like £100pw of maternity pay. So don't assume consistency!

One could distinguish allowances from income which is relieved of tax by saying allowances ARE taxed but at 0%. But I'm sure when I was at school we were taught to work out the taxable income by deducting the allowances from gross income ������!

If your P60 said your earnings were £20,000, would you only declare £7500 as £12500 is covered by the personal allowance? No, you have to declare the full £20,000. Similarly, if your interest is £2000, you have to declare the full £2000. Doesn't matter that some is covered by an allowance.

Taxable income means the income which is used to assess your liability to tax. Normal interest is taxable, earnings are taxable, so both need including in full, including the parts covered by an allowance.

The guidance also says, "Gross UK interest (before tax has been deducted)

You must include interest you receive on bank, building society and other savings accounts unless
specifically non-taxable, for example, a non-taxable Individual Savings Account (ISA) etc."

Yes. ISA interest does not count towards the income you're assessed on for tax purposes, so it's "specifically non taxable". Ordinary bank interest is taxable.

In my view the first £1000 of my savings interest is "specifically non-taxable", although I'm not sure why they throw "specifically" in. But, it's non-taxable specifically to me, unless we are using the 0% rate allowance argument, which to me is just playing with words and not a substantive distinction.

It's not "specifically non taxable". It counts towards the amount you're assessed on for tax. Just like any employment earnings that are covered by the personal allowance. Still taxable, because it's used in the calculation of your tax liability.

Straightbat

I tried to find the legislation without success

I have looked at two sites of reputable organisations and both with their example calculations begin with totting up all your "taxable income", make deductions and end up with "taxable income" from which 20% tax is computed (or more if the higher rate thresholds are crossed).

From this I concluded that taxable income is used in a general sense to describe income categories rather than actual income amounts (although it may also be loosely applied to the actual gross income of an individual from these categories); but it is also used to describe an individual's personal taxable income - the amount to which the tax rates are actually applied.

zagfles

Straightbat wrote: »

I tried to find the legislation without success

I have looked at two sites of reputable organisations and both with their example calculations begin with totting up all your "taxable income", make deductions and end up with "taxable income" from which 20% tax is computed (or more if the higher rate thresholds are crossed).

From this I concluded that taxable income is used in a general sense to describe income categories rather than actual income amounts (although it may also be loosely applied to the actual gross income of an individual from these categories); but it is also used to describe an individual's personal taxable income - the amount to which the tax rates are actually applied.

This isn't the latest, there are later amendments, but I wouldn't have thought it's changed wrt the points we've been discussing:
http://www.legislation.gov.uk/uksi/2011/1986/schedule/4/made

The definition of taxable income isn't very clear, but looking at my latest income tax calculation, there's lines in the calculation

"Total income received": Total of employment and savings income
"Minus Personal Allowance", then

"Total income on which tax is due" - which includes interest within the PSA, but is after the personal allowance has been subtracted!

It then shows the interest "taxed at 0%". So clearly interest "taxed at 0%" is included in income "computed as for the purposes of the Income Tax Acts".

If anything, the personal allowance is the thing that wouldn't count, not the PSA, however it's definitely wrong to subtract the PA, so it's even more definitely wrong to subtract the PSA!

Note also the specific deduction of pension contributions in the legislation, but no mention of charity donations.

Compare that to the tax credits legislation where both are specifically allowed:
http://www.legislation.gov.uk/uksi/2002/2006/made

So from that I'm pretty sure all taxable income, including income within the PA, the PSA, probably all other allowances like the dividend allowances are included, but income which doesn't form part of the tax calculation (like ISA interest) can be ignored.

Also that pension conts can be deducted but not gift aid.